bernanke couldn’t predict the crises, but…

Bernanke says US economy on cusp of recovery

By Jeannine Aversa, AP Economics Writer

Federal Reserve Chairman Ben Bernanke declared Friday that the U.S. economy is on the verge of a long-awaited recovery after enduring a brutal recession and the worst financial crisis since the Great Depression.

Economic activity in both the U.S. and around the world appears to be “leveling out,” and “the prospects for a return to growth in the near term appear good,” Bernanke said in a speech at an annual Fed conference in Jackson Hole, Wyo.

The upbeat assessment was consistent with the Fed’s observations earlier this month. The central bank has taken small steps toward pulling back some emergency programs to revive the economy.

Still, Bernanke stressed Friday that despite much progress in stabilizing financial markets and trying to bust through credit clogs, consumers and businesses are still having trouble getting loans. The situation is not back to normal, he said.

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China reduces holdings in US debt

China reduced its holdings of US government debt by the largest margin in nearly nine years in June, according to data from the US Treasury.

China holds more US government debt than any other country and cut its holdings of US securities by more that 3% in June, said the BBC’s Chris Hogg.

Japan and the UK – second and third largest holders of US debt – increased their holdings over the same period.

China’s holding of US debt is about 7% higher than at the turn of the year.

Inflation fear

In recent months the US government’s budget deficit has widened thanks in part to the Obama administration’s costly stimulus plan.

Our correspondent in Shanghai says that China is worried about this, and fears the stimulus efforts will fuel inflation in the US, reducing the value of the dollar.

This would then erode the value of the debt China holds in the US currency.

In June, China cut its holdings of US securities by about $25bn, a fall of 3.1%.

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